UBS Analysts: ‘Large-Scale Power Stations Could Be on a Path to Extinction’

Leading investment bank UBS says the payback time for unsubsidized investment in electric vehicles paired with rooftop solar and battery storage will be as low as six to eight years by 2020, potentially triggering a massive shift in the energy industry.

“It’s time to join the revolution,” UBS wrote in a note to clients, in what could be interpreted as a pointed rejoinder to those governments and corporates that believe centralized fossil-fuel generation will continue dominate for decades to come.

By 2030, according to UBS analysts, this combination will deliver a payback time of around three years. Right now, the payback is probably around twelve years, enough to encourage the interest of early adopters. (You can read more here on why EVs will make solar viable without subsidies.)

The UBS report focuses on Europe, where the firm forecasts that Germany, Spain and Italy will be leaders because of high electricity and fuel costs in those countries.

UBS forecasts that EVs and plug-in hybrids will account for around 10 percent of the market in Europe by 2025. “While the initial growth should predominantly be driven by incentives and carbon regulation, the entry into the mass market should happen, because EVs will pay off,” wrote the analysts.

“The expected rapid decline in battery cost by [more than] 50 percent by 2020 should not just spur EV sales, but also lead to exponential growth in demand for stationary batteries to store excess power. This is relevant for an electricity mix with a much higher share of [more volatile] renewables.”

Those utilities that are able to move with the times — and the technologies — should be able to extract more value in highly competitive supply activities, as customer needs will be more complex. Those that cling to the past could face impending doom.

“Large-scale power generation, however, will be the dinosaur of the future energy system: Too big, too inflexible, not even relevant for backup power in the long run,” UBS wrote.

UBS contends that centralized fossil-fuel generation will become “extinct” — and that it will happen a lot sooner than most people realize.

The bank predicts that a significant number of large-scale centralized plants could be gone within a decade. “Not all of them will have disappeared by 2025, but we would be bold enough to say that most of those plants retiring in the future will not be replaced.”

UBS also torpedoes the theory that the retirement of some more expensive plants will cause a rebound in wholesale prices. “The last survivors will be the low-marginal-cost plants," wrote the bank. “We believe that what is perceived as an ‘optionality’ in conventional power generation by some investors will never materialize."

“Large-scale power stations could be on a path to extinction,” concluded the analysts.

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Giles Parkinson is the founding editor of RenewEconomy. The full version of this piece was originally published at RenewEconomy and was reprinted here with permission.